New Sarbanes-Oxley “Whistleblower” Decision Provides Important Clarification on Protected Activity

October 5, 2006

In one of the most important Sarbanes-Oxley " "whistleblower" decisions to date, the Department of Labor’s Administrative Review Board ("ARB," or "Board") has reversed the decision of an Administrative Law Judge and ruled that FLYi, Inc. did not violate the Act. Platone v. FLYi, ARB Case No. 04-153 (September 29, 2006). The case, which was handled before the ARB by Gibson, Dunn & Crutcher LLP and Ford & Harrison LLP, provides important new guidance on what constitutes protected "whistleblowing" under Sarbanes-Oxley ("SOX").

The complainant, Stacey Platone, was employed as a labor relations manager for FLYi (then known as Atlantic Coast Airlines). As part of its collective bargaining agreement with the Air Line Pilots Association ("ALPA"), FLYi paid certain pilots for time that they spent on union activities when they otherwise would have been flying. The union was then to reimburse the Company for this "flight pay loss." Platone alleged – and reported to her superiors – that some pilots were abusing the system by intentionally scheduling flight time on days they otherwise would have taken off, but that they knew were reserved for union business. By then dropping the flights to attend to union-related business, Platone charged, the pilots were able to collect flight pay. 

At about the same time, it was learned that Platone was romantically involved with a pilot who was an influential member of ALPA. After an investigation, her employment was terminated due to what the Company judged to be an undisclosed conflict of interest.

Platone filed suit under SOX, claiming that her employment was terminated because she had reported mail, wire, and securities fraud within the meaning of the Act. Specifically, she claimed, the alleged flight loss abuses were improperly funneling money to certain pilots at the expense of the union or – in the event the union refused reimbursement – at the expense of the Company. The ARB, overruling an earlier decision by an Administrative Law Judge, concluded that Platone’s internal reports did not constitute protected activity under SOX, and that FLYi’s decision to terminate her therefore did not violate the Act.

The ARB’s decision provides important guidance on protected activity under SOX:

  • By its terms, protected activity under SOX includes reporting what one reasonably believes to be a violation not only of the securities laws, but also of the federal criminal mail, wire, and bank fraud statutes. However, the ARB made clear in Platone, an allegation of mail or wire fraud "must at least be of a type that would be adverse to investors’ interests" in order to be protected by SOX. Slip Op. at 15. Thus, in this case for example, to the extent Platone was reporting potential losses to the union (which reimbursed the flight pay loss), she was not engaged in Sarbanes-Oxley protected activity. 

  • Sarbanes-Oxley protected activity "must relate ‘definitively and specifically’ to the subject matter of the particular statute under which protection is afforded," the Board said.  The Act "does not provide whistleblower protection for all employee complaints about how a public company spends its money and pays its bills." Id. at 16 (emphasis added). "Thus, for example," the Board continued, "an employee’s disclosure that the company is materially misstating its financial condition is entitled to protection under [SOX]." Id. at 17. In this case, however, Platone "raised a possible violation of internal union policy and she expressed concern on how this might affect [FLYi’s] ability to collect a debt, but nothing approximating fraud against shareholders." Id. at 18.

  • Third, the ARB made clear, where the purported protected activity involves reported fraud against shareholders, the materiality of the potential loss is significant. The materiality of a misrepresentation or omission is a "basic element[ ]" of a securities fraud claim, the Board elaborated, but "Platone testified to less than $1,500 of potential losses" to FLYi. "It is unlikely that a reasonable shareholder would find a loss of less than $1,500 material." Id. at 21. This statement by the Board contrasts with earlier pronouncements by Labor Department administrative law judges that materiality is irrelevant to SOX whistleblower claims. 

Because Platone did not engage in protected activity, the ARB reversed the decision of the Administrative Law Judge and dismissed the complaint. 

The ARB declined to address other issues in the appeal, including the important question of when a parent company that does not directly employ the complainant is a proper respondent under Sarbanes-Oxley. In another case before the Board, the Solicitor of Labor has submitted an amicus brief arguing that the familiar four-part "integrated employer" test should determine whether a company is a covered employer under the Act. See Brief of the Assistant Secretary of Labor for Occupational Safety and Health, Ambrose v. U.S. Foodservice, Inc., ARB Case No. 06-096 (Sept. 1, 2006).  


With its combined expertise in labor and employment matters and securities law, Gibson, Dunn & Crutcher is uniquely positioned to represent corporations and audit committees in Sarbanes-Oxley whistleblower matters. The firm has tried numerous whistleblower cases before the Department of Labor, and has considerable experience representing corporations and audit committees in connection with Sarbanes-Oxley "whistleblower" matters, including internal investigations; representations in federal court and Labor Department investigations; and representations before Labor Department administrative law judges and the Department’s Administrative Review Board. In handling these matters, we are mindful of the importance of seriously examining the whistleblower allegations while also providing a thorough representation to our client, be it the company or the audit committee. We are able to bring to bear the expertise of our nationally-respected Securities Litigation practice group to ensure that implications under the securities laws – as well as the employment-related aspects – are fully appreciated and addressed. For more information on our Labor and Employment Practice Group, please contact practice group Co-Chairs Eugene Scalia in Washington, DC (202-955-8206, [email protected]) or Deborah Clarke in Los Angeles (213-229-7903, [email protected]).
To learn more about the Firm’s Securities Litigation Practice Group, please contact practice group Co-Chairs Wayne W. Smith in Orange County (949-451-3800, [email protected]), Jonathan C. Dickey in Palo Alto (650-849-5300, [email protected]) or Robert F. Serio in New York (212-351-4000, [email protected]).

© 2006 Gibson, Dunn & Crutcher LLP

The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.